Problem 20.23 (Algorithmic) EOQ, Safety Stock, Lead Time, Batch Size, and JIT Ba
ID: 2650195 • Letter: P
Question
Problem 20.23 (Algorithmic)
EOQ, Safety Stock, Lead Time, Batch Size, and JIT
Bateman Company produces helmets for drivers of motorcycles. Helmets are produced in batches according to model and size. Although the setup and production time vary for each model, the smallest lead time is six days. The most popular model, Model HA2, takes two days for setup, and the production rate is 825 units per day. The expected annual demand for the model is 39,600 units. Demand for the model, however, can reach 49,500 units. The cost of carrying one HA2 helmet is $3 per unit. The setup cost is $6,600. Bateman chooses its batch size based on the economic order quantity criterion. Expected annual demand is used to compute the EOQ.
Recently, Bateman has encountered some stiff competition
Explanation / Answer
1. Calculate the optimal batch size for Model HA2 using the EOQ model. Round your answer to the nearest whole number if rounding is required.
optimal batch size = (2*A*O/i)^(1/2)
optimal batch size = (2*39600*6600/3)^(1/2)
optimal batch size = 13200 Unit
Answer
13200 units
2. Upon learning of the lost order, the marketing manager grumbled about Bateman's inventory policy, "We lost the order because we didn't have sufficient inventory. We need to carry more units in inventory to deal with unexpected orders like these."
How much additional inventory would have been needed to meet the customer's requirements?
Total Inventory required by customer = 13200
Total Inventory could deliver by 7th day = 3300 + 825*(7-2) = 7425
Additional Inventory needed = 13200 - 7425 = 6125 Unit
Answer
6125 additional units
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